Don't worry. I haven't lost my mind. I know I have written a few posts over the years telling you why it's important to have a bookkeeper.
What I do see too often though, is people not using their bookkeeper properly. They get the very bare essentials done in order to file their returns each year, and little else.
In my opinion, it's a big waste of money.
Yes, I (or any other bookkeeper) can spend a couple hours and give you a quick report on how you "did" last year. However, most software can do the bulk of that work automatically too. If I spent a couple hours setting up rules in Xero you almost could have it all done by itself.
So, if you're wanting to get a passing grade on "Tracking My Finances 101" that is the lowest you need to set the bar. If, instead, you'd like to grow your business and get the most out of the bookkeeper you hired, here are 5 reasons you are currently wasting your money on your bookkeeper.
1- You're not asking for anything other than a basic P&L.
The most basic report you will generate for your business is the P&L, or Profit & Loss...also known as an Income Statement. This shows you your income and expenses, and gives you a basic idea of how your business is "doing". Far too often this is where owners stop. I can't tell you how many times I've been asked why the Net Income isn't a reflection of the bank balance. The other two standard reports you might get (especially if you're incorporated) are the Balance Sheet and Cash Flow Statement. That's a great start, but there are probably other reports you should be looking at...depending on your business. You and your bookkeeper should discuss other reports that would be useful.
2- You're not digging into the P&L details that you are given.
Some of you are just getting a P&L. While that's not ideal, you should at least really dig into the numbers on that report. Don't just look at the total income and the net income/loss and call it a day. Block off some time and really read over the numbers. Maybe the net income looks good, but did you see how your money was spent? Did you notice that you spent $10,000 on Meals and Entertainment last year? I hate to admit it, but bookkeepers aren't perfect. There might be an error in the report. In the very least, they made a bad assumption, and a big purchase was posted to a category you weren't expecting. If anything looks strange, ask for more details so you can make sure everything is correct.
3- You're not reviewing your numbers often enough.
If all you need to do is file a return then getting your books caught up yearly is fine. I do this all the time. It's not wrong, it's just not giving you a chance to react. It's also very difficult to spot errors or answer questions your bookkeeper or accountant might have. Do you remember what that $52.46 you spent last August was for? Getting reports to review on a weekly, monthly, or quarterly basis is much more valuable. It lets you spot errors, get on top of negative trends (eg. your costs are increasing by 15% each month), and prepare for taxes much more effectively.
4- You're not setting up a budget.
There are hundreds of services, books, and blog posts about maintaining a personal budget. Not as many about a budget for your business, right? As I said before, your bookkeeper doesn’t know your business inside and out. I don't know if Office Supplies are normally $100/month or $5,000/month...especially if you're just getting started. How much do you need to make each month? Are there expenses you want to limit that you know you're currently overspending on? Discuss a budget with your bookkeeper. Some bookkeeping software has this built-in, but you can always use an old fashioned spreadsheet too. Then, each month, compare your P&L with your budget to see how you're doing.
5- You're not asking your bookkeeper enough questions.
"Are the books ready?" doesn't count as enough questions for your bookkeeper. Once you start fixing steps #1-4, you're going to have a lot of follow up questions for your bookkeeper. That's great! Trust me, there are no stupid questions, and any good bookkeeper is glad you asked. To be honest, it's also a great way for us to verify our work. On that 0.00001% of the time we're not perfect, your question might clue us into a mistake we made, or even a question we meant to ask you. If you don't meet regularly (though you should) make sure to keep a list of questions to ask at your next meeting.
You took a huge leap starting your own business, and it's probably taking up way too much of your time. The least you can do is to make sure the time and money you're spending is being spent effectively. Your bookkeeper is there to help you grow your business. Make sure you avoid these mistakes to make the most of this valuable business relationship.
If you have any questions you'd like to ask a bookkeeper, please write them in the comments or contact me directly. Also, if you'd like to get more advice about bookkeeping and small business, please sign up for my free newsletter.